Budget 2012: 'A zero hope Budget'

By Chris Daniels, Herald Online staff

Finance Minister Bill English is congratulated by Prime Minister John Key and his Government colleagues after reading his 2012 Budget in the House. Photo / Mark Mitchell
Finance Minister Bill English is congratulated by Prime Minister John Key and his Government colleagues after reading his 2012 Budget in the House. Photo / Mark Mitchell

The Budget may have delivered few surprises, but opposition parties have criticised it as a failure that has done little to address the tough economic problems facing New Zealand.

Budget 2012 - the fourth budget of the current National Government - saw Finance Minister Bill English tell Parliament that the Government was still responsibly managing its finances, meaning it was on track to post an operating surplus in 2014/2015.

But Labour leader David Shearer said the Budget showed "zero aspiration'' and Greens co-leader Russel Norman said it was "a failure for the economy and a failure for our people''.

The Budget forecast a return to surplus by 2014-2015, but that has come at the cost of little new spending and extra costs for smokers, tertiary students and parents of small children.

Mr Shearer said the Budget would send New Zealanders flocking to airport departure lounges.

"We've got the worst growth in 50 years, more than 50,000 Kiwis fleeing to Australia and a 50 per cent increase in unemployment,'' he said.

"This truly is a zero Budget. It has zero growth and zero aspiration for New Zealanders. It offers zero hope that it will grow our economy now or in the years ahead. It fails to make the tough choices.''

He said National kept promising growth without doing anything to encourage it.

"Last year, they promised 4 per cent growth. Today they've cut it to 2.6 per cent,'' he said.

Mr Norman said the Budget failed to deliver any fundamental changes to the structural problems facing the New Zealand economy while ramping up the burden on lower and middle-income New Zealanders.

"The budget is a failure for the economy and a failure for our people. The average Kiwi will pay more to cover the Government's economic mismanagement,'' he said.

Mr Norman said the budget was full of cuts that would hit middle New Zealand in the pocket.

"Many Kiwis will be much worse off as a result of this budget.''

New Zealand First leader Winston Peters said the Government was "caught in a timewarp'' of asset sales and public service cuts.

The Budget neglected the fundamental requirements for manufacturers and exporters to prosper and develop the economy, he said.

"It will see New Zealand slide backwards at an alarming rate as jobs disappear along with our manufacturing and exporting base.

"Instead of providing a brighter future as promised, this Budget has doomed the next generation of Kiwi workers to join the 1000-plus a week packing their bags for Australia.''

Mr Peters said the "debts and deficits-focused Budget'' did nothing to address the growing gap between the rich and poor.

However, Mr English said the fact that the Government was still on target to reach a surplus in the next few years was a considerable achievement, given the impact of the recession that began in 2008, the Global Financial Crisis and the Canterbury earthquakes.

New Zealand is now one of the few developed countries not running deficits and increasing debt. Budget forecasts show a small fiscal surplus of $197 million in 2014/2015, despite a $1.2 billion deterioration in the outlook for that year since the last Budget Policy Statement in February.

Future Investment Fund

Today's Budget provides some more detail around the way proceeds from the partial sale of state-owned assets will be spend. The "Future Investment Fund" will initially get $558 million - with $33.8 million going to modernising schools, $88m for hospital redevelopments, $250 million to KiwiRail and another $76 million to the new Advanced Technology Institute.

Government hopes to eventually get between $5 billion and $7 billion from its assets sales programme. Energy company Mighty River Power is the first to go to market, likely to be later this year.

Tobacco taxes increasing 10 per cent a year

Tobacco excise tax will increase by 10 per cent on January 1 each year for the next four years - taking the average price of a pack of 20 cigarettes to more $20 and raising an extra $528m. This increase comes on top of the existing yearly inflation-indexed tobacco tax hikes. For every 10 per cent increase in price, tobacco consumption falls by 5 per cent.

Changes to tax credits and deductions

The Budget confirms tax changes outlined earlier this week to close loopholes that allow costs of holiday homes, boats and even aircraft to be deducted from tax if they are also rented out for income. These changes are expected to save around $109 million over the next four years. Changes mean that if a bach is rented out for 30 days and the owner uses it for 30 days in a year, just 50 per cent of the costs can be deducted from tax - rather than the current 90 per cent.

Three tax credits are being removed - those the Government says are "no longer fit for the purpose for which they were set up" - namely the income under $9,880 tax credit, the childcare and housekeeper tax credit and the tax credit for the active income of children, which will be replaced by a limited exemption. These changes will save $117m over the next four years.

Childcare and housekeeper tax credits were "poorly targeted" said the Government, with the bottom 30pc of households making up just 11pc of those claiming the credits. An extra $78.4 million is being given for Inland Revenue's audit and compliance - which Government hopes will net it an extra $345 million in taxes over four years.

More disclosure from KiwiSaver fund managers

After taking an axe to its KiwiSaver subsidies last year, the Government is this year making changes designed to be much kinder on its 1.9 million members. Fund managers will, from next April, be required to report performance, fees and costs, liabilities and liquidity, along with any conflicts of interest, in an approved, standardised form.
Such a change means 'league tables' will be easier to draw up, so investors can easily compare fees and performance across the rival funds.

Government is also looking at changing the way the six default KiwiSaver schemes operate. These look after money from 500,000 people who have not actively chose a KiwiSaver fund. There has been criticism that such funds operate too conservatively, depriving many of the often younger members of returns. A review of the default provider scheme will be held later this year following the publication of a discussion document.

Extra money for science and research

A $326m boost for science, innovation and research was announced in today's Budget. A new Advanced Technology Institute will receive operating funding of $90 million and $76 million capital funding to work with the high-tech sector. An extra $100m is going to fund tertiary based research.

As the Euro area and the UK head into recession, and the United States witnesses low and uncertain growth, Finance Minister Bill English says today's Budget show New Zealand is going through a "moderate adjustment"- avoiding big cuts to public services and living standards seen elsewhere.

"Our outlook is more positive than most," he said today. "We are a food-producing economy on the doorstep of a rapidly growing middle class in the Asia-Pacific region," said English.

"New Zealanders have shown great resilience through challenging times - Budget 2012 supports their aspirations for a brighter future."

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